As the name suggests, immediate needs plans are for people who need care now or who are on the point of needing it.
This area of long-term care insurance has represented a growing market for some time and in the current political climate it is an area which we believe more IFAs should be exploring.
An estimated 95,000 people join the list of those in need of care each year. Of course, some of these will be cared for through their local authorities as they will fall below the means-test threshold of £16,000 (increasing to just over £18,000 from April 2001). But this topline figure should make us all stop and look a little more closely at the role of insurance in limiting the cost of LTC, particularly for those who need it now.
Understandably, when the need is immediate, the premiums are higher than for pre-funded LTC insurance because the chances of needing care have increased from one in four to one in one. However, immediate needs plans remove the open-ended financial commitment of customers who might otherwise go on paying for care until they die or until the money runs out. Insurance can also free up other assets which might have been put aside to pay for care.
The premium is determined by the individual's state of health, the nature of their illness and the financial benefit required. In exchange for a lump-sum payment, an immediate needs plan will guarantee regular tax-free payments to buy care services for as long as care is needed.
This type of insurance can also offer a number of other features, including:
l An increase in the payments for care services if health deteriorates further.
l Increasing regular payments linked to an inflation index.
l Capital protection options refunding an agreed proportion of a single premium or an agreed number of payments for care services.
l Deferred starting date for those who want to limit their liability but are willing to pay care costs from their own resources for an agreed period.
In addition to the financial benefits, most providers offer practical help in the form of a care support service.
Ruby is an 85-year-old widow who has suffered a stroke. She is in a wheelchair and unable to look after herself. She does not want to be a burden on her family and has found a nursing home she would like to move into.
I have used an immediate lifetime care plan calculation. This is not a quote and will differ from other providers' plans. For simplicity, I have not factored in the Government's proposals on covering the nursing element of care which could in future reduce the amount required by up to £5,000 a year.
Ruby's current income is £6,604 a year net and the proceeds from her house sale are £85,010. Her choices are to invest the money in a deposit account with a return of, say, £4,500 a year netof tax, pay for the nursing home out of reducing capital or take out an immediate needs plan.
The immediate needs solution
A one-off payment of £43,230 provides a guaranteed payment of £17,160 a year to the nursing home, increasing every year in line with RPI for as long as care is needed.
This leaves £6,780 for immediate access and £35,000 to be placed in suitable investments for capital growth to fund legacies.
Ruby may live for one year or 10 or more years and the level of premium reflects the risk to the insurance company. She can move into the nursing home of her choice and has the peace of mind that the quality of care she has chosen is guaranteed. She can use the remaining money in whatever way she wants.
So, where are you likely to find Ruby? That depends on who is helping to look after her affairs at the moment. It could be her close family or a firm of solicitors or accountants if she has investments to manage. It could even be the nursing home to which a preliminary visit has been made.
So, your best opportunities to provide advice on immediate needs plans may be via the children, who are already your clients, or through professional connections with lawyers, accountants and nursing home owners.
There has been, as everyone is aware, a long period of political deliberation on the question of funding LTC. This has undoubtedly meant that many people who are on the point of needing care never gave any earlier consideration to a pre-funded insurance policy despite the level of their net worth.
Many of these people were already well into their 60s and 70s when LTC insurance products first became available.
It is these people who have most to lose financially and who, on reaching the point of need, should be encouraged to explore the insurance option.